The US economy presents a complex picture for voters ahead of November’s midterm elections, balancing unexpected growth against the persistent pressure of rising costs. While first-quarter figures for 2026 showed the economy ‘motoring along,’ the ongoing US-Israeli war in Iran has significantly impacted household budgets, creating a critical challenge for President Trump.
Economic Growth Surprises
Official statistics revealed the economy grew by 2% on an annualised basis in the first quarter of 2026. This marked a ‘significant boost’ following a slowdown at the end of 2025. This growth came despite pressure on consumers from US tariffs, which led to higher prices for American shoppers, and the ‘fresh energy shock’ sparked by the Iran war.
Consumption also saw growth, increasing by 1.6% on an annualised basis. Economists noted that the hit to consumers was ‘not as bad as feared.’ However, the primary driver of this growth appears to be corporate investment. James Knightley, chief international economist at ING, stated that as consumer spending cools, ‘investment linked to tech and AI has clearly become the main engine of growth in the US.’ This highlights a shift in the economy’s underlying momentum.
Cost of Living Pressures Intensify
Despite positive headline growth, the ‘cost of living’ remains a dominant concern for voters, echoing the political adage: ‘It’s the economy, stupid.’
- The conflict in Iran, particularly Trump’s strikes and the subsequent closure of the Strait of Hormuz, has directly impacted global energy markets. Brent crude, a major oil benchmark, surged to a four-year high of $126 on Thursday, having traded at around $73 before the war began at the end of February. While it has since fallen to $111, the increase is substantial.
- This translated to higher prices at the pump, with American Automobile Association data showing Americans paid $4.30 for a gallon of fuel by the end of April, up from less than $3 in February.
- Overall inflation also saw a ‘sharp jump,’ with March’s average annual price increase reaching 3.3%, a ‘near two-year high’ and a notable increase from February’s 2.4%.
Interest Rates Remain Elevated
The inflationary pressures, particularly March’s figures, have ‘dashed any hope of an imminent interest rate cut’ by the Federal Reserve. The central bank maintained its base rate, which affects mortgage and other borrowing costs for Americans, at the 3.5% to 3.75% level on Wednesday, a decision contrasting with pre-war expectations of a series of cuts.
For consumers, this means higher borrowing costs. Data from Freddie Mac indicates that the average interest rate for a 30-year mortgage has risen from 5.98% to 6.3% since US strikes on Iran commenced. Samuel Tombs, chief US economist at Pantheon Macroeconomics, suggests that ‘higher oil prices and expectations the US will maintain its blockade of Iranian ports for the long haul’ could delay rate cuts until 2027.
Resilient Stock Market Performance
In contrast to the struggles faced by consumers, those with investments in the stock market have ‘fared well during the war.’ Major US indices—the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite—have not only recovered early losses but have ‘continued their pre-war upward trajectory.’
- The Nasdaq has seen a gain of approximately 10% since the conflict’s start.
- The S&P 500 is around 5% higher.
- The Dow has risen by just over 1%.
These increases benefit direct investors and those with pension pots tied up in stocks, such as 401ks.
The upcoming November elections will be heavily influenced by the economic landscape. While the positive headline GDP growth and rallying stock markets offer some reassurance to Republican strategists, the ‘spiralling cost of living’ remains a significant concern. President Trump’s ability to navigate the remainder of his term will depend substantially on the resolution of the Iran conflict, particularly whether the Strait of Hormuz reopens and if this translates into lower fuel and grocery prices for American voters.
